DPA and DPAS (Defense Production Act and Defense Priority Allocation System) are especially hot this week as the world deals with the fallout from COVID-19.
**Update 3/27/2020** Shortly after this livestream, the President reported that he was invoking DPA to force GM to produce ventilators. At face value, this appears to go against some of the topics in this training, specifically that companies cannot be forced to provide items or services that they don’t already provide. However, this assertion is not entirely accurate. While it was discussed that DPA would be invoked, it never actually was. Furthermore, the government’s contract was with a small business out of Seattle, which was subcontracting a piece of the work with GM. That small business is in the business of producing ventilators. Had DPA been invoked, it would have been with the prime contract holder, not GM.
The information in this video is accurate, even in light of this late development.
Good morning, everybody. My name is Patrick Mathern. I’m the founder of SpendLogic, and I’m here to host our very first live-stream event. So, what we’re going to do here is I’m going to walk through some information related to DPA and DPAS. And then after I get through the content that I’ve created here, I’ll go back through and answer any questions that you might have.
So, anybody that has questions, be sure to log in and use the chat box. You can also email us any questions at [email protected] if you have those. So, don’t hesitate to reach out. After this is completed, we’re going to go ahead and post a link to the content here, a recording of this live-stream on our resources page at spendlogic.com. So, go ahead and visit that site if you have a need to see this again.
So, for those of you that aren’t familiar with SpendLogic, what we are is a consulting group that also has a online tool that is the first in the world and the only, at this point, that does automated price analysis reports, commercial item determinations, and source justifications.
So, if you’re not familiar, you can go over to our website. The URL is below and you can download a free trial and check it out. So to start off with a little bit about where we are right now in the current situation. So, everybody is very familiar with the COVID-19 crisis, obviously.
I imagine many of you are watching this from home. You can see that I’m in my own home as I record this. And as of March 18th, President Trump enacted the Defense Production Act, DPA. So, what that means and the way that it’s played out thus far is that no orders have actually been issued. We’re going to talk about what that means, to have any orders under DPA.
But the way that the President has worked up to this point is he has urged industry to produce medical supplies, but he has not required anybody to shift their production yet. And we’re not going to go through the policy decisions or why that’s a good idea or a bad idea. Really, what I want to talk about with you here today is, okay, well, how does that affect me?
And where do we go from here? So, first off, let me talk to you a little bit about DPA. So what is DPA? A lot of you that are logging into this live-stream are probably more familiar with DPAS. And DPA is not just a shorthand version of writing DPAS, it’s actually a slightly different concept. DPA is the Defense Production Act and it was enacted in 1950.
So what it does is it gives…basically, DPA gives the President a broad set of powers that he or she would not typically have. So, it covers… Originally, it was just basically focused on defense, but it has been expanded to also include emergency preparedness, which is obviously a situation that we’re in right now.
So, what it does is it gives the President special authority to ensure that the supply chain of critical supplies and services are available in times of these emergency situations. Some things that it actually does and/or requires, it basically gives the power to the government that says, “Okay, if you provide a contract to a company, they’re actually required to accept it.”
Now, that comes with some exceptions and some caveats. We’re going to talk about that in a minute. But for the most part, if you’re somebody that, say, you’re a company that produces ventilators on a regular basis, if you get an order from the government, all of a sudden, all of your orders get pushed to the back of the line and you’re now producing for the government right now.
And that’s the second point, priority performance. So, the government basically cuts to the front of the line. Next, it provides for an allocation method for items and services that are produced under DPA. It also guarantees loans. So, if you’re a contractor that has to go get financing in order to comply or to meet the requirements, then the government will basically co-sign on that loan and guarantee payment.
And last but not least, the overall idea is that it ensures an ongoing industrial base for these times of crisis. So, this is in contrast to DPAS. So, what is D-P-A-S, DPAS?
This is the Defense Priority Allocation System. So, many of you are going to be familiar with DPAS in that it’s on your orders, right? As you release orders, either you’re accepting orders from the government or you’re releasing them to your subcontractors, you’ll see that rating system, DO or a DX, or it’ll be unrated, right?
So, you’ve probably seen this a lot. There’s a lot of orders that are out there that are DPAS rated not related to the COVID-19 crisis. Really, the defense industry is very used to these. There’s a lot of things that are ongoing right now, programs of record that require DPAS ratings. So, again, the order of ratings is DX.
That’s the highest. So, anything that carries a DX rating goes absolutely to the front of the line. Next is your DO, and then last is unrated. So, a DX takes priority over DO, DO takes priority over unrated. The acceptance requirements, and again, you’re all probably familiar with this, but if you receive an order that is rated, for DX, you have 10 days to accept it, and for DO, you have 15 days.
This also flows down to your subcontractors. So, again, it’s important if you receive an order from the government, you must also pass that along to your subcontractors because what good is an order for supplies and services if you don’t have the materials or the inputs required to actually produce it? A little bit more information here.
So, as far as that rejection concept that we talked about a second ago or that I mentioned, so, you actually have to reject an order in some cases, and then there’s other cases where you can’t reject orders. So, to begin with, if you’re unable to fulfill the requirement by the need date stated on the order itself, then you’re actually required to reject it.
Now, that comes with a caveat that you also have to provide information back to the customer that says, “Okay, we can’t provide it by this date, but we can provide it by such and such.” They can choose to change the delivery date in order to meet your capabilities in that case. If it conflicts with an equally rated order, then you must also go back to the customer with that and reject the order.
Again, you need to tell them which order it conflicts with, and then they can make a priority adjustment if they’d like to, which would then result in you having to take that order again. If your customer won’t meet your customary terms. Okay, so, this one’s interesting. If you are given an order by the government, all right, or any DPAS-rated order, I guess, I should say.
If they’re unable to meet the terms and conditions, including customary pricing that you or other customers adhere to, then you are not required to accept that order. So, this is not a full nationalization, per see. You’re not doing things at gunpoint by any means.
This is within the realm of, you know, working as a commercial entity, an ongoing commercial entity. If you don’t produce or provide these items or services that are on this order, then DPAS is not set up to require you to change your line of business to actually do this. This has been one of the things that’s been in the news recently, why hasn’t President Trump mandated that companies shift their production over to another, you know, set of products and services?
Why isn’t every company creating ventilators? Well, that’s actually not what DPAS and DPA do, and there’s some question as to the legality of that. So, we won’t get into the finer points of that right now, but that’s a little bit of where they’re coming from when you hear about that in the news.
If this item is yours, is something that you only produce or provide internally, and you haven’t done it for the past two years, then you have the option to reject that order. The next one is kind of the pay…I refer to it as paying off your big brother or sister to do your homework for you.
If the entity that’s placing the order with you produces or provides that service themselves, then you don’t have to accept it. Now, what this means is if the government basically has gone to a contractor and given them a rated order, that contractor then turns around and subs it to you even though the prime is the one that typically does it, you don’t have to accept it, okay?
And the idea here is, you know, this is not having DPAS-rated orders, and moving your production around could be harmful to your profitability. And if companies were then to just farm out their DPAS-rated order so that they didn’t feel the pain in their margins, that’s not something that’s taken kindly.
So, don’t sell your homework to somebody else. And last, if the acceptance of an order would actually violate DPA or DPAS in and of itself, then you don’t have to take that order. So, some considerations for you as a contractor, and we have agencies here joining us here today, but speaking directly to contractors.
I mentioned this before, but you’ve really got to make sure that all of your ratings are flowed down to your subs. So, anytime that you have a rated order from an agency, you would then need to make sure that you pass that down so that you can adhere to the requirements of that order. Your non-rated work is basically pushed to the back of the line. It prioritizes your rated work, obviously.
And that may mean that you have to bring forward lower margin work. So, if you’ve got high profitability work that’s in production right now, but a DPAS-rated order comes up at your typical terms and conditions and pricing, then it may mean that you lose some margin and some profitability. A corollary to that that, you know, needs to be mentioned is that DPAS-rated orders can’t be priced any differently than a typical order would be placed.
So, even though you’re going to have some inconvenience, you may have some expedite, you may have some things that occur that are special in nature, you can’t price…you can’t discriminate on price against a DPAS-rated order. So the pricing needs to be in line with what you’re typically and customarily offering to your other customers.
And last, there’s legal protections, and we’re going to talk about that in just a second. But there’s legal protections out there for you when you are performing on a DPAS-rated order, but you need to make sure that you really adhere to the requirements of the DPAS program, otherwise, it won’t cover you. The government will not back you up.
So, again, from a contractor perspective, there’s protections out there for you related to DPAS. Again, one of those is that you’re not required to accept an order or a requirement for services or products that you don’t already provide today. So, it’s not likely that you’re going to be told tomorrow that even though you provide accounting services, that you’re going now be conscripted to produce medical devices, right?
Your rated orders, again, rely on your established terms and conditions. So, it’s not like you’re going to be required to cut your margins or provide these products or services that are lower priced than typical for the government customer. They will rely on your customary terms and conditions and pricing. And last, this is what I mentioned just a second ago, you’re protected from liability due to adhering to DPA and DPAS.
So, for instance, if you’re sued for breach of contract by another customer, and that’s directly related to your acceptance of a DPAS-rated contract, you know, you can’t perform for your other company or your other customers because of this DPAS-rated contract, the government will not hold you liable.
So, they will help you…for lack of a better term, they’ll help you get out of that. It’s not blanket immunity by any means, it only require or it’s only covered if you follow, very strictly, the requirements of DPAS, and it has to be related directly to the DPAS-rated order. So, it’s a little bit tricky, but there is some defense out there in case you are found in breach of contract.
So, you know, how does this affect you? It’s in the news a lot these days. I know that a lot of our clients have reached out to us and asked, you know, questions about DPAS, questions about DPA. How does this affect us? You know, we have DPAS-rated orders, you know, how does this fit into that?
So, by and large, just because DPA…excuse me, just because DPA has been enacted, there are no orders that have been placed for COVID-19 activities. Right now, commercial industry is responding favorably to the need of the government, and so that requirement has not come up.
Now, as far as… So how it affects you today, it actually doesn’t. It may affect you in the future. If you have production facilities set up for, say, masks, an N-95 mask. We all know what an N-95 mask is, and we may not have before. Or ventilators, right?
That’s a big, hot topic right now. You may, conceivably, receive an order from the government requiring you to push those to the front of the line. Again, that hasn’t happened yet. And if you don’t produce those things, or you don’t provide parts or supplies related to those, then the likelihood of this affecting you is low. Last caveat there is standby, right?
These are uncharted waters. We’ve never seen a global pandemic like this. We don’t know how the government is going to react. We don’t know what’s going to be required to actually get this figured out. So standby. But as it stands today, and as the DPA and DPAS programs are in place today, you are not affected at this point.
Last but not least, as we wrap this up, there’s additional training and resources out there for anybody that needs it. You can always reach out to us at SpendLogic. You can write us an email at [email protected] We provide consulting services as well as training and tools related to FAR procurement compliance. You can also go to the DCMA’s website.
They have a DPAS website there. WIFCON, Where in Federal Contracting. If you’re not familiar with that site, it’s a great forum with some really smart folks that answer questions and weigh in. So, I highly recommend. And they’ve got a whole section dedicated to DPAS. And then last but not least is NCMA Collaborate, so the National Contract Management Association.
If you’re not part of that, then you should be if you’re in this industry, and if you’re part of that, but you haven’t used the Collaborate tool, it’s definitely worth looking at. Again, a lot of smart people from the industry weigh in on topics and questions, and it’s basically free consulting help, to tell you the truth.
So, go check that out. Happy to answer any questions. Let me check. I don’t think we have any chat questions right now. So, if you have any questions, or you think of something after this ends, go ahead and write us at [email protected] We’re going to try to do these more often, possibly weekly, on various topics.
So, if you have topic suggestions or things that you want to know more about, again, drop us a note and we’ll work those into the next session. Thanks for taking time. We appreciate it and look forward to doing this more often with you. All right, take care